§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ernest G. Perry.]
§ 12.28 a.m.
§ Mr. John Tilney (Liverpool, Wavertree)I want to put before the House the effect of the devaluation of the British pound on the future of our commodity markets, particularly those in London and Liverpool, and the need to do more for them if invisible exports—worth in 1965 £40 million—are not to be jeopardised.
Traders in commodities coming from Nigeria, Kenya, Tanzania and Uganda, none of which devalued when we did, have been badly hit because they had to buy in the local currency and sell in sterling. From October, 1963, when the Nigerian Produce Marketing Company was moved from London to Lagos, that company refused to sell cotton, ground nuts, palm oil kernels, cocoa, or any of their other produce except in Nigerian pounds. It is as well to realise how important the so-called invisible export earnings are from brokerage and commodity trading. The figures on page 107 of the Report of the Committee on Invisible Exports show that in 1965 £4.3 million was earned by the market in copper, tin, lead and zinc. Figures for that year appear to have been less for other commodities, though the Committee admits that the returns are voluntary and incomplete.
The Liverpool Cotton Association claims £4 million over and above the £40 million earnings mentioned by Mr. Cyril Kleinwort, then deputy chairman and now chairman of the Committee, in his letter to The Times of 15th December last, as a contribution to this country's earnings in 1965—an important contribution, the Financial Secretary will agree, having regard to today's trade balance. The Liverpool cotton market does this—the same applies to other commodity associations—at virtually no charge on national resources other than the knowledge and experience of a handful of professional traders.
Moreover, there is room for increase, since only 15 per cent. of the £700 million world cotton trade passes now directly 1550 or indirectly, through Liverpool. It must be remembered also that such trade benefits all the ancillary services, usually British, of banking, insurance and shipping. Any major set-back for the status of the London and Liverpool international commodity trading centres must lead to a loss of business which would be far greater than any support now needed.
But the threat of such a loss is now with them. It is not as though some had not tried to protect themselves against disaster. Here, I quote from a letter written as long ago as 3rd August 1966 from the Liverpool Cotton Association to the Bank of England:
A Member points out that there are certain circumstances where it is impossible for him to obtain cover. He goes on to say that, as an international raw cotton merchant, his business is to trade in cotton and it is his duty to avoid taking any risks or positions in foreign exchangeas he would over fire or burglary—but that there are two specific instances where an international merchant can become wide open to very serious losses.The first instance"—I shall deal with only one—is where a merchant is buying cotton for forward delivery in a 'sterling area' country and selling it for forward delivery to various destinations. The normal practice when making a sale in a currency other than sterling is to sell that currency forward. However, if the United Kingdom were to devalue and the country in the 'sterling area' failed to follow"—which is exactly what happened—a merchant would be wide open to a serious loss because it is impossible to buy forward Nigerian pounds, East African shillings, etc. The Member suggests that the Bank of England should allow a merchant to cover forward commitments by buying forward dollars which could then be sold when the cotton is paid for.There came a reply on 1st September, 1966, nearly 15 months before actual devaluation:The Bank of England regret that they are unable to offer any concession which would met the request made by a member of your Association.In other and oral discussions, cover was requested repeatedy over four years by other commodity traders, since there was no forward market in the local currencies. Did the Bank and the Government at that time prefer that no trade should have been done with these members of the sterling area? It would have been 1551 an odd advertisement for them and for Commonwealth.I am told that the commercial banks said that there was no likelihood of the pound going and not the Nigerian pound as well. Presumably, they must have discussed this with the Bank of England. Too many people, I suspect, were thinking of 1948, not 1967. But I am informed that some traders have been told that they should have inserted a devaluation clause in every contract. How pleased the Socialist Government would have been at that time at such an advertisement for a possible devaluation of the pound, months before it actually happened. Nigeria, anyhow, would not have accepted it; nor would the buyers. Had traders tried to insist on it, all that would have been achieved would have been a massive switch to traders outside Britain, who would have dispensed with a devaluation clause because they would have been allowed to hedge in dollars.
Some action has been taken by the Bank of England. A five year loan, subject to six-monthly repayments, was offered up to 80 per cent. of a trader's substantiated loss. No doubt, such was done because the loss was limited and would not open the door to a host of other claimants. It has, I believe, never been offered before. Has the Bank, perhaps, a conscience? But in effect no foreigner dealing with a British firm knows whether the Bank of England will not foreclose at any of the six-monthly repayment dates, although the Bank has offered a sympathetic interview to any firm that finds its difficulties continuing.
I understand that the documental claims amount to £4.3 million and the loans, therefore, to £3.5 million, even though the offer was unrestricted. Those entitled to it are a very limited number. Since all these losses would offset Corporation and Income Tax, is there not a strong argument either to make the loans a gift or extend them to 15 years, with no interest? Then all the firms concerned would be viable, and no foreigner need fear their bankruptcy.
Australia has already met virtually the full losses of the Wheat Board; Pakistan has gone a long way towards recompensing her traders. Nigeria, as well as making helpful suggestions for temporary 1552 aid to our traders while the British Government made up their minds, has offered help to their own exporters who sold in our pounds. Even the Sudan has offered its people long-term loans at about 2 per cent.
It must also be remembered that most of the firms concerned had to pay more for their old sterling contracts in order to get the raw materials for the mills, or to fulfil obligations to buyers overseas. One must remember, too, that we take brokerage or profit on a lot of commodities that never see these shores and, as well as the common ones that I have already mentioned, they vary from illipe nuts from Borneo to sod oil from Australia. But I make no claim for extra losses incurred for such contracts. These were real business risks.
But is it not essential to look to the future? Firms still cannot protect themselves when trading in Nigerian pounds or East African shillings. Though Nigeria, I am told, will now sell in pounds, they give a preference to those who buy in Nigerian pounds, as they have lost faith in sterling. The world used to trade in our pounds, but once commodities start being dealt with in other currencies London and Liverpool may no longer get their export earnings. It may be said that the Nigerian pound may soon be devalued, but I am told that last Friday, before the meeting in Basle, it was difficult to obtain forward exchange cover for pounds into any other international convertible currency.
Surely the Financial Secretary will agree that it is time to establish a forward market in certain sterling area currencies. The Treasury may say that this is a job for private enterprise, but how can this be done when most other central banks concerned would oppose it because of the likely heavy discount on their currencies and fears of abuse by their nationals? Without their co-operation, such a market would be very difficult and, in any case, the trades are so seasonal that an open position would have for many months to be held far too large for any other than a quasi-governmental body.
People now are not prepared to take further risks. Is it not possible for such to be covered on lines similar to E.C.G.D. on specified transactions and on a profit-making basis? Such an artificial market 1553 could be available only to British registered firms and companies. I understand that there is such cover in East Africa, but only for their nationals.
It must be remembered that this lucrative trade, and the experts now employed in it here, could easily move to Europe, and Britain would suffer. Already trade has been lost. Nigeria has sold 350,000 tons of ground nuts directly to Europe: two-thirds should have come through London. I understand that the Chancellor of the Exchequer has promised to receive another deputation, this time led by my right hon. Friend the Member for Enfield, West (Mr. lain Macleod). I hope that the Chancellor of the Exchequer and the Financial Secretary will ponder the possibilities in the meantime.
§ 12.41 a.m.
§ The Financial Secretary to the Treasury (Mr. Harold Lever)I am sure that we will all wish to commend the force and cogency with which the hon. Gentleman the Member for Liverpool, Wavertree (Mr. Tilney) has put forward the case of these commodity traders, but I fear that I must trouble the House with a little background comment before coming to the specific situation.
Trade with the outer world falls broadly into two parts—the overseas sterling area and foreign currencies. There is an active forward market in foreign currencies, but not an active forward market in sterling area currencies. This was certainly the position at the relevant time before devaluation. It followed that anyone trading in the sterling area in currencies other than the £ sterling was liable to suffer loss if their obligations in other sterling currencies increased in terms of sterling by reason of a devaluation of sterling not followed by a corresponding devaluation in the currency of the other sterling area country. This was a commercial risk that all the persons concerned in the trade knew perfectly and, as the hon. Gentleman has shown, were anxious to avoid.
The Bank of England made it perfectly clear, before any traders committed themselves in this way, that it was not prepared to undertake in the forward market the risk which was involved in such trade. It follows that, whether traders of the kind we have heard of this 1554 evening or any other traders engaged in contracts with other sterling areas currencies, they were aware of the risk of loss—and the possibility of gain in the event of the devaluation of those currencies not followed by sterling—and took the risk upon themselves. Nobody can say that they were misled; nobody can say that they were unaware of the risk. I confess that it is rather sad that this sort of hazard arises from the unsettled state of international monetary affairs and, in particular, our own sterling currency during 1967.
I have the greatest admiration for the skill, and integrity and the world-wide reputation of the commodity traders. No one in the House values more than I do the part they play in our commerce and the contribution they make to our invisible exports. Indeed, I can recall that, in my youth in the North of England, I had personal dealings with them, not altogether of a meritorious character, but on some of which I gained and on some of which I lost. Such experiences as I had taught me that they were an alert group of businessmen of the highest integrity and experience. Whatever traders were involved in the risk of devaluation of the pound sterling not followed by devaluation of the other sterling area currency, and whoever was not aware of and alert to the risks, I am sure that the commodity traders would not fall into that ignorant category. I do not think that the hon. Gentleman has suggested that they did.
Although we deeply regret the losses they have suffered, it becomes clear that we have now to examine the situation which arises for the Government on devaluation. I can record that no one regretted more than I the devaluation of sterling which was forced upon us. The consequences for everybody trading abroad were either arbitrary gains, in some cases, or arbitrary losses.
It would be an impossible burden for the Government to take on the arbitrary losses of all traders in some form, whether by way of long-term loans without interest or by outright gifts, which the hon. Gentleman suggests. I cannot see, with the deepest sympathy for the group of people whose cause he has so ably pleaded, why they should be singled out from all those who suffered losses by 1555 reason of devaluation for Government responsibility for their losses.
§ Mr. TilneyBut are they not in a slightly different category? We know they are limited. The total in losses is only £4.3 million, or actually £3.5 million. They are in a different category because they could not get their insurance.
§ Mr. LeverUnhappily I am in receipt of many claims for many losses and if smallness of the size of a claim is a reinforcement of it, then £4½million is a great sum compared with the relatively modest sums which, reluctantly, I have to refuse to pay out to people who have suffered losses through no fault of their own because of devaluation. Far from this being a small sum as the hon. Gentleman suggests, there are innumerable sums much smaller which have been lost by people in perhaps an even weaker position than the traders the hon. Gentleman is representing tonight.
I hope that he will not mistake me. In saying this, I do not withdraw one word of sympathy which I feel for the difficulties and losses these trades have suffered. Nor do I withdraw one word of appreciation for the value of their services and the great assistance they are in our invisible trade. But I must point out that it would be totally impossible financially for the Government to take in general the losses which have been sustained by devaluation, more particularly as we have no means of taking in the profits which arbitrarily and in large sums have been made by others. I have all the sympathy in the world for the grounds of distinction in the hon. Gentleman's argument for this claim as well as for the thousands of other claims made by people who have had arbitrary losses through no fault of their own and for the same reasons.
The Bank of England has shown the Government's recognition of the special role of these traders in our invisible exports and balance of payments efforts by recognising the cash difficulty with which they were faced. It has made available £5 million to these firms. The hon. Gentleman says that most of it will be taken up.
This loan is on exceedingly favourable terms of interest. It is unsecured and it 1556 is subordinated to all other claims upon these firms. I would think that the sympathetic response promised by the Bank of England at half-yearly intervals is no reason for alarm among traders who need the money when they come up before the Bank for renewal. I am bound to say that the Government cannot take responsibility, even in the future, for these exchange risks.
In most cases Nigeria is prepared to accept sterling contracts, but I understand from what the hon. Gentleman says that this is not invariable and it is a pity. I can see that real difficulties may arise because of this, but unless the trade can negotiate his contract in sterling, there may be a currency risk.
We understand that forward facilities are available in the East African territories, but these are essentially a matter for the commercial interests themselves. The Government and the Bank of England will give every facility that they can to help create this forward market, or to assist, or advise, or to give any permissions that are necessary for its furtherance.
§ Mr. TilneyI understand that the forward facilities in East Africa are limited to East African nationals.
§ Mr. LeverThat is not my information. I understand that the market is not very mature, but will develop, as one would expect it to. If traders engaged in this trade want to hedge their currency risks, they have to organise the possibility of a forward market. We cannot take the financial responsibility for that forward market, but we will give every facility to the traders, every advice, help and permit that is required from the Bank of England, to further the extension and development of that market. This will obviously be of some assistance to traders. What we cannot do is to open up a new area of forward market responsibility in the sterling area, in which the Bank of England or the Government take responsibility. I know that this is hard on the traders concerned, but this is one of the risks that inevitably follows from the somewhat uncertain state which international monetary affairs has reached. It is one of those pricks against which it is of little use to kick at the moment.
1557 It is suggested that we can get E.C.G.D. to give a guarantee.
§ Mr. TilneyNo.
§ Mr. LeverIt is the equivalent of a currency guarantee that is requested. Unhappily, this is divorced from the normal function of the E.C.G.D. It is not the appropriate organisation to arrange and organise currency guarantees. Its whole organisation is for other purposes, and it cannot be brought in to help.
If there are any further facilities which the Bank of England or the Government can give which might help traders in this difficulty, we shall be glad to consider them, but I have to give the hon. Gentleman a dusty answer when it comes to extending the forward commitments which we have to undertake in the overseas markets. We have to hope that traders will sort this out, as they have always done, with shrewdness and judgment, so that they minimise their risks and undertake trading with their usual skill and ingenuity, despite the added difficulties which international monetary uncertainty has created.
I think the hon. Gentleman mentioned that it was proposed that there should be a 1558 deputation led by the right. hon. Member for Enfield, West (Mr. lain Macleod) to see the Chancellor of the Exchequer. I have not heard of this. I can only say that the presence of the right hon. Gentleman will always be welcome at the Treasury. I can usually rely on him for an apt biblical quotation in support of whatever argument he pursues. We do not know of these arrangements, but I am sure that any application to the Treasury for further discussion and consideration will be sympathetically received by the Chancellor.
I am grateful for the moderation with which the hon. Gentleman put his case. I repeat the Government's very real and genuine sympathy for these traders, and my own sympathy which follows, particularly because of the views that I had about the maintenance of parity, but in all the circumstances I have nothing very tangible to offer the hon. Gentleman on the argument that he has put before the House.
§ Question put and agreed to.
§ Adjourned accordingly at five minutes to One o'clock.